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AINS 21 - Segment A | 137 Questions with 100 %
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From a risk management viewpoint, insurance is used to A. Prevent the cost of losses B. Reduce the cost of losses C. Transfer the cost of losses D. Isolate the cost of losses. - ✔✔C. Transfer the cost of losses. A loss exposure is: A. Any condition that presents the possibility of a loss. B. Any condition that precludes the chance of loss. C. The same thing as a peril. D. The same thing as a hazard. - ✔✔A. Any condition that present the possibility of a loss. Some loss exposures are not easy to retain, avoid, or control. What risk management technique is frequently used to treat such exposures? A. Reinsurance B. Prevention C. Transfer D. Reunderwriting - ✔✔C. Transfer
Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through A. Retention B. Noninsurance transfer techniques C. Avoidance D. Loss prevention - ✔✔B. Noninsurance transfer techniques Another name for liability insurance is A. First-party insurance B. Second-party insurance C. Third-party insurance D. Multiple-party insurance - ✔✔C. Third party insurance Sally is a recent college graduate who lives in the suburbs and drives to work daily in the city. She recognizes that owning a car creates both property damage and liability exposures for her and at the same time she has the burden of student loans. For someone in Sally's circumstances the most practical risk management technique for dealing with her auto-related loss exposures is A. Risk transfer B. Retention C. Loss control D. Avoidance - ✔✔A. Risk transfer Retention is often used in combination with insurance as a way of treating loss exposures. One of the major downsides of individuals using retention alone is
D. Employee dishonesty policy - ✔✔B. Commercial package policy Coverage for money, securities, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by A. Professional liability insurance. B. Inland marine insurance. C. Commercial crime insurance. D. Ocean marine insurance. - ✔✔C. Commercial crime insurance. Term life insurance A. Allows the policyholder to borrow against policy savings. B. Provides protection for a specified period with no cash value. C. Accrues a cash value. D. Provides lifetime protection - ✔✔B. Provides protection for a specified period with no cash value. The process of restoring an individual or organization to a pre-loss financial condition is the process of A. Subrogation. B. Indemnification. C. Loss mitigation. D. Premium rebating. - ✔✔B. Indemnification.
Which one of the following statements is correct with respect to characteristics of insurable loss exposures? A. Private insurance is suitable for risks where the probability and timing of loss is known. B. If losses are not fortuitous, premiums could increase for all policyholders. C. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued. D. If the insured has control over whether or when a loss will occur, the risk is attractive to insure. - ✔✔B. If losses are not fortuitous, premiums could increase for all policyholders. Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that A. The insurer is able to predict the amount and timing of each future loss. B. The losses associated with it typically involve small amounts. C. The insurer is able to charge a premium that the insured can afford to pay. D. The insurer can charge a high premium for the coverage. - ✔✔C. The insurer is able to charge a premium that the insured can afford to pay. Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be A. Definite and measurable. B. Independent and not catastrophic. C. Fortuitous. D. A large number of similar exposure units. - ✔✔B. Independent and not catastrophic.
D. Pure risk - ✔✔C. Large number of similar exposure units Ideally insurable loss exposures are subject to losses that A. Result from unidentifiable causes. B. Are definite in time, cause, and location. C. Occur gradually over long periods of time. D. Are immeasurable in terms of frequency or severity. - ✔✔B. Are definite in time, cause, and location. Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be A. Definite. B. Pure risks. C. Fortuitous. D. Independent. - ✔✔A. Definite. For a loss exposure to be ideally insurable it must be definite in A. Duration, damage, and cost. B. Time, cause, and location. C. Value, extent, and consequences. D. Scope, origin, and coverage. - ✔✔B. Time, cause, and location.
Which one of the following statements is correct? A. Insurance policies typically cannot be used to provide evidence of financial resources. B. One disadvantage of insurance is that it promotes inefficient use of policyholders' funds. C. Contractors must usually provide evidence of liability insurance before a construction contract is granted. D. Insurers generally do not provide incentives to organizations to implement risk control measures. - ✔✔C. Contractors must usually provide evidence of liability insurance before a construction contract is granted. The primary role of insurance is to A. Make a profit for the insurance company's shareholders. B. Educate individuals and organizations about loss prevention. C. Sell insurance policies to individuals and organizations. D. Indemnify individuals and organizations for covered losses. - ✔✔D. Indemnify individuals and organizations for covered losses. Pravalt Construction Company pays less than its competitors for workers' compensation insurance because Pravalt has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance? A. Enable efficient use of resources B. Reduce social burden C. Meet legal requirements D. Promote risk control - ✔✔D. Promote risk control
A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. The cost of claims payments that would not have been necessary if insureds' carelessness had not caused losses C. An insurer's loss on invested premiums D. The payment of commissions to agents - ✔✔A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary One of the costs of insurance is said to be opportunity costs. This means that if capital and labor were not being used in the insurance business, they could be used elsewhere and making other productive contributions to A. The agency system. B. Society. C. The insurance industry. D. Government. - ✔✔B. Society. Which one of the following is an operating cost of insurers? A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. Increased property losses because people have insurance C. Producers' commissions D. Increased liability loss payments because people have insurance - ✔✔C. Producers' commissions
Though premiums are an obvious cost of insurance, many insureds believe they are too high because A. Premiums are not a regular cost of living. B. Insurers only use eighty cents from every premium dollar to pay losses. C. Benefits are intangible until a loss occurs. D. Insureds do not deliberately cause losses. - ✔✔C. Benefits are intangible until a loss occurs. A type of insurer that has a board of directors elected by policyholders and that may pay dividends to policyholders as a return of a portion of premiums paid is a A. Stock insurer. B. Mutual insurer. C. Reciprocal insurance exchange. D. Captive insurer. - ✔✔A. Mutual insurer. A mutual insurance company is owned by A. Policyholders. B. Mutual funds. C. Independent investors. D. State insurance departments. - ✔✔A. Policyholders. All of the following are types of private insurers, EXCEPT: A. Stock insurers B. Reciprocal insurance exchanges
D. Is an unincorporated association providing insurance coverage to its subscribers. - ✔✔D. Is an unincorporated association providing insurance coverage to its subscribers. Insurance Company wrote a commercial liability policy for a manufacturer of off-road motorcycles. The potential costs of the insured's loss exposure exceed Insurance Company's capacity. Insurance Company could consider which type of contractual transferring agreement to meet its needs? A. Reciprocal insurance B. Mutual insurance C. Reinsurance D. Interinsurance - ✔✔C. Reinsurance Small U.S. unincorporated insurance associations, domiciled mainly in Texas, are known as A. American captives. B. American mutuals. C. American Lloyds. D. American reciprocals. - ✔✔C. American Lloyds. An insurer that was formed for the purpose of earning a profit for its stockholders is a A. Captive insurer. B. Mutual insurer. C. Stock insurer. D. Reciprocal insurance exchange. - ✔✔C. Stock insurer.
A company interested in improving cash flow should consider meeting its insurance needs through which one of the following types of insurance organizations? A. Captive insurers B. Stock insurers C. Reciprocal insurance exchanges D. Mutual insurers - ✔✔A. Captive insurers Risk control is intended to prevent or reduce losses. When practicing sound risk control, an organization A. Will not be required to expend economic resources to insure those loss exposures. B. Is likely to see the same economic benefit as compared to insurance. C. Is likely to use insurance to treat those loss exposures. D. Will often be able to eliminate losses from those loss exposures. - ✔✔C. Is likely to use insurance to treat those loss exposures. The size of an employer's loss exposure for workers compensation insurance is based on A. The amount of its payroll. B. The number of its employees. C. The extent of its operations. D. The final premium audit. - ✔✔A. The amount of its payroll. The premium charged for an insurance policy should be
B. Never experience losses that exceed the amount the insurer anticipated when pricing coverage. C. Receive coverage that adequately reflect their loss exposure. D. Do not require monitoring for increases in hazards. - ✔✔C. Receive coverage that adequately reflect their loss exposure. Which one of the following is true about the functions within an insurance organization? A. Insurers use common terminology to identify these functions. B. The essential functions are always performed by insurer personnel. C. These well defined functions operate with a high degree of independence. D. Each function contributes or detracts from the overall effectiveness of the insurer. - ✔✔D. Each function contributes or detracts from the overall effectiveness of the insurer. What is the most common reason premium audits are conducted? A. The amount of actual losses are not known at the start of the policy period. B. Claim examiners have discovered unacceptable operations during the policy period. C. Loss control activities during the policy period may reduce the risk of loss. D. The amount of the loss exposure is unknown at the start of the policy period. - ✔✔D. The amount of the loss exposure is unknown at the start of the policy period. Which one of the following is a typical adjuster activity during the claim handling process? A. Notify underwriters of larger loss exposures than were originally contemplated. B. Determining policy terms and conditions
C. Contacting the insured. D. Controlling the loss. - ✔✔C. Contacting the insured. Risk control is intended to prevent or reduce losses. When practicing sound risk control, an organization A. Will often be able to eliminate losses from those loss exposures. B. Will not be required to expend economic resources to insure those loss exposures. C. Is likely to use insurance to treat those loss exposures. D. Is likely to see the same economic benefit as compared to insurance. - ✔✔C. Is likely to use insurance to treat those loss exposures. Which one of the following statements concerning government insurance programs is true? A. The federal government provides workers compensation insurance to employers who cannot get it from private insurers. B. Businesses seeking flood insurance under the National Flood Insurance Program (NFIP) must purchase it at local federal government offices. C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. D. Various state insurance programs provide crop insurance for perils such as drought, disease, excessive rain and hail. - ✔✔C. Fair Access to Insurance Requirements (FAIR) plans make basic property insurance available to property owners who can't get it otherwise. Which one of the following is a federal insurance plan in which the government acts as a partner with a private insurer that sells insurance and pays the claims and then reimburses the insurer for the portion of losses that exceeds premiums and investment income?
The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage from private insurers. Which one of the following is the best rationale for the MAIF program? A. Private insurers overcharge for auto insurance, and the state provides a low-cost alternative. B. Private insurers face limited competition, and the state increases competitive pressures by operating this type of plan. C. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. D. Auto insurance for high-risk drivers is profitable, and the program enables the state to share in the profits. - ✔✔C. Auto insurance is compulsory, and the program makes it possible for all drivers to have reasonably priced insurance. Which one of the following statements is correct regarding government involvement in insurance? A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases. B. Most organizations obtain workers compensation insurance through federal or state insurance programs. C. Government insurance plans typically incur significant costs in marketing and sales commissions. D. Legislators find it more straightforward to invite and analyze bids from private insurers than to establish government plans. - ✔✔A. Federal and state government are involved in insurance to facilitate compulsory insurance purchases. Following the terrorist attacks on the United States, insurers became reluctant to provide property insurance on target properties until the federal Terrorism Risk Insurance Program
(TRIP) was introduced. Which one of the following social purposes did this government insurance program serve? A. Pooling of loss exposures B. Prevent economic disruption C. Reduced risk to society D. Incentive to purchase insurance - ✔✔B. Prevent economic disruption State governments can be involved in insurance at various levels. Some states provide which one of the following types of insurance in competition with private insurers?: A. Flood B. Workers compensation C. Crop D. General liability - ✔✔B. Workers compensation Why are insurance regulators concerned about the effects of large catastrophes? A. Insurance rates will rise. B. Insurers may become insolvent. C. Licensed insurers will be unable to handle demand. D. They could lead to destructive competition. - ✔✔B. Insurers may become insolvent. Which one of the following is a key focus of states' insurance regulation? A. Product branding. B. Producer concentration.
